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Mainstream, VOL LV No 47 New Delhi November 11, 2017

Demonetisation after One Year

Saturday 11 November 2017, by SC


The first anniversary of demonetisation has been observed across the country.

Almost a month after demonetisation it was written in these columns on December 1, 2016:

“...the words of two leading Indian economists in the US—Nobel Laureate Amartya Sen and Prof Pranab Bardhan—assume extraordinary significance. Prof Sen categorically states that demonetisation was a “despotic action” as “it undermines notes,... bank accounts, the entire economy of trust”, adding: “Only an authoritarian government can calmly cause such misery on the people.” And Prof Bardhan observes: “Apart from the tremendous hardship that the poor people are going through, the large informal sector in the economy will find it very difficult and time-consuming to recover from this big blow.”

Today after a year those words stand vindicated. Finance Minister Arun Jaitley on November 7 came out with a spirited defence of Narendra Modi’s demonetisation announcement on November 8, 2016 calling it a “watershed moment for the Indian economy”. However, it was a laboured endeavour on his part as he claimed, without any convincing proof, that not only did it change the agenda but also made corruption difficult. Thus, in his opinion, it was not only a “morally and ethically correct” step but also “politically correct”.

On the other side, noted CPI-M leader T.M. Thomas Isaac, who is currently the Finance Minister of Kerala, has mocked at the entire process by pointing out:

The voodoo economics of Narendra Modi sucked out 86 per cent of the currency and it took nearly a year to replenish the same...

....the voodoo economists believed that the rich with black money would not dare to deposit it in banks. A figure of Rs 3-4 lakh crore, it was assumed, would not return to the banks and would consequently reduce the liabilities of the RBI resulting in a windfall gain to the RBI and to the Central Government. I have heard this personally from the highest levels of the Central Government. But what is the outcome after one year? 98.96 per cent of all Specified Bank Notes (SBNs) have already come back and the RBI is still counting.

And Salman Anees Soz, who was formerly with the World Bank and is now a Congress member, has brought into the focus the wanton attack on the informal economy by the demonetisation drive that also failed to generate jobs:

As opposed to a surgical strike on black money, demonetisation turned into a carpet-bombing of the informal economy.

At the same time, in a brilliant piece the Vice-Chancellor of Ashoka University, Pratap Bhanu Mehta, has written:

Demonetisation was an ill-conceived step, a revolution that was not going to succeed, because it was, above all, an act of hubris. It was part of a political imagination that is closer to a technocratic authoritarianism: Combining great faith in technology with state power.

The overall negative impact of demonetisation has affected the people in general and the common man in particular. The GST has also had a definite adverse effect on the public at large. This, according to observers, will be reflected in the Gujarat Assembly elections. And this the Narendra Modi-Amit Shah duo is well aware of. That is why the BJP is leaving no stone unturned to reverse the trend. The question now is: in the face of the heavy odds would it be able to repeat its UP Assembly victory in Gujarat?

November 9 s.c.

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